Working Paper

An Empirical Analysis of the Cost of Borrowing

Abstract: We examine borrowing costs for firms using a security-level database with bank loans and corporate bonds issued by U.S. companies. We find significant within-firm dispersion in borrowing rates, even after controlling for security and firm observable characteristics. Obtaining a bank loan is 132 basis points cheaper than issuing a bond, after accounting for observable factors. Changes in borrowing costs have persistent negative impacts on firm-level outcomes, such as investment and borrowing, and these effects vary across sectors. These findings contribute to our understanding of borrowing costs and their implications for corporate policies and performance.

Keywords: credit spreads; bonds; loans; macro-finance;

JEL Classification: E6; G1; H0;

https://doi.org/10.20955/wp.2024.016

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2024-07-15

Number: 2024-016

Related Works

• Working Paper Revision (2024-07-15) : An Empirical Analysis of the Cost of Borrowing
• Working Paper Original (2024-07-15) : You are here.